Britain’s long-term borrowing costs have hit a 28-year high, tightening the squeeze ahead of Andy Burnham’s first Budget on 28 October. Labour has promised relief from rising living costs while committing itself to rules that reassure creditors and preparing higher military spending to fund Britain’s role in NATO’s imperialist wars.
The yield on 30-year gilts, the bonds the government issues to borrow money, reached 5.89 percent its highest level since 1998. The yield on 10-year gilts rose to its highest since June 2008. Higher yields increase the cost of new government borrowing and refinancing debt as it matures. They can also feed through into more expensive borrowing for households and businesses.
Burnham told MPs that “fiscal responsibility” would be his government’s “bedrock”. Chancellor John Healey has already said he’ll retain the self-imposed borrowing rules inherited from Rachel Reeves. Rising interest costs could wipe out half the room for manoeuvre forecast in March, increasing pressure for spending cuts or tax rises to keep within those limits.
Within that framework, support for working-class households becomes conditional on what remains after the government has satisfied its commitments to creditors. A rise in debt-interest forecasts becomes an argument for holding back measures that could ease hardship. Labour has chosen to make its borrowing target the test of what it can offer workers.
Karen Ward, JP Morgan’s chief market strategist for Europe, gave a clear account of the power lenders exercise.
“Markets are getting a lot more choice about who they are going to lend to and at what interest rates,” she said.
Ward explained that governments are increasingly competing with major technology companies that are borrowing to invest in AI. Credit is allocated according to the prospect of financial returns, leaving public provision exposed to the calculations of private capital. Investors can demand more from the state when other borrowers offer more attractive opportunities.
The owners and managers of financial capital don’t need an electoral mandate to exert this power. Their control over lending allows them to influence the terms on which governments operate. Labour’s fiscal rules reinforce that authority by making reassurance for creditors a governing priority. Workers’ needs have to pass a test set around the interests of those who own capital.
Alongside these constraints sits the drive to raise military spending. Presenting rearmament as just another financial pressure conceals what the money is for. It finances Britain’s capacity to wage imperialist war as part of NATO, sustaining the armed power behind the interests of British capital and its allies. Arms companies gain orders, while workers face the cost through taxation and pressure on public services.
Lenin linked the dominance of finance capital to the struggle between capitalist powers for markets, investment outlets and spheres of influence. Britain’s place in the US-led NATO alliance serves that struggle. The alliance gives Britain’s ruling class a means of defending its overseas interests alongside the dominant imperialist power. Increased military budgets fund the forces and equipment needed to pursue those interests through war and the threat of war.
The inflation fears surrounding the ongoing Iran war are already among the factors driving yields higher. Workers face a further squeeze as the consequences of war feed into borrowing costs and threaten household budgets. Expanding military expenditure adds another claim on the wealth workers produce, even as help with living costs is made dependent on dwindling fiscal room.
Borrowing costs have also risen sharply in the US, Japan and Europe. Concerns about government debt and the prospect of higher central-bank interest rates have added to the pressure. The international pattern exposes how widely states depend on financial markets, and how easily the demands of creditors become demands for restraint imposed on the population.
At the G20, Healey boasted that Britain had recorded the fastest growth in the G7 so far in 2026, that productivity was improving and that borrowing was falling faster than in other major economies. These are the credentials Labour is presenting to international finance. For workers, the immediate questions concern whether wages cover bills and whether the public services they depend on can function.
Conservative leader Kemi Badenoch attacked Burnham’s belief that government spending could produce growth. The dispute keeps attention on the preferred methods of managing capitalism, while the power of creditors and Britain’s imperialist military commitments remain embedded in the state’s priorities.
Burnham has promised “more substantial change” to ease living costs. His government’s commitments already show the limits within which that promise will be pursued. Relief for working-class households depends on the room left by fiscal rules designed to reassure capital, while rearmament brings further demands on public money. Workers are expected to finance the state, cover the growing cost of its debts and pay for the wars fought in the interests of their own ruling class.
